James L. Butkiewicz

Minerals, Institutions, Openness, and Growth: An Empirical Analysis

Competing explanations of the resource curse are tested using panel data. The data support the existence of a mineral resource curse for developing countries with weak institutions, consistent with the hypothesis that owners of mineral resources use weak institutions and openness to trade to stifle the development of human capital, to the detriment of growth in other sectors of the economy. Manufacturing imports substitute for the development of domestic production, so openness to trade correlates with lower growth in mineral dependent economies. The “Dutch disease” and debt overhang explanations of the resource curse are not supported. (JEL O11, Q32)

The influence of state-level economic conditions on the 1992 U.S. presidential election*

Evidence is found that state-level economic conditions played a significant role in the defeat of George Bush in the 1992 U.S. presidential election. Evidence is also found which indicates that the entrance of Ross Perot into the race as an independent candidate was not instrumental in the Bush loss.

Capital Account Openness, International Trade, and Economic Growth: A Cross-Country Empirical Investigation

New empirical estimates of the effects of capital restrictions on growth support capital account liberalization, especially for developed countries. Capital restrictions reduce the benefits of foreign direct investment (FDI) on growth in developing countries. Estimation results for long-term capital flows demonstrate that countries with higher flows grow faster, challenging the belief that countries must attain a threshold level of development or human capital to benefit from capital inflows. Moreover, findings show that trade with developed countries and FDI inflows are substitutes in developing countries. Overall, the results support capital account liberalization in developed and developing countries.

The stability of the demand for money and M1 velocity: Evidence from the sectoral data

Sectoral money demand functions are estimated using flow of funds data. Cointegrating relationships are found for household and (nonfinancial) busniness sectors. Estimated error-correction models for both sectors, however, exhibit parameter nonconstancy for time periods which roughly correspond with important financial innovations and deregulations. Thus, sectoral estimates of money demand relationships are consistent with the view that innovations and deregulation contribute to the nonstationarity M1 velocity.

The Reconstruction Finance Corporation, the Gold Standard, and the Banking Panic of 1933

The banking crisis of 1933, which forced a national holiday closing the entire U.S. financial system, is often blamed on either publication of the names of banks borrowing from the Reconstruction Finance Corporation, a speculative run on the gold-backed dollar due to fears that president-elect Roosevelt would devalue the currency, or both. Evidence presented here indicates that neither factor started the final banking crisis of the depression. The Michigan bank holiday ignited the panic, resulting in a series of bank holidays and a run on the dollar. This chain of events toppled the United States financial system.

Governor Eugene Meyer and the great contraction

Eugene Meyer was a highly respected financier and government official when he was appointed Governor of the Federal Reserve Board in 1930. Through his force of character, he dominated economic policy making during the last years of Hoover’s administration. He initially found that sizable foreign short-term claims had put the Fed in a precarious position. After reductions in interest rates reduced foreign claims relative to the Fed’s gold reserves, he developed a plan for expansion. His initial plans were constrained by the weak institutional structure of the Fed and the lack of free gold. He obtained legislation creating the Reconstruction Finance Corporation and section 3 of the 1932 Glass-Steagall Act, temporarily allowing use of government securities as collateral for Federal Reserve notes, overcoming the free gold problem. However, when the 1932 open market policy failed to produce an immediate expansion of bank credit, the Federal Reserve Bank governors were able to end additional expansionary policies. Suffering from poor health, political stalemate, and possible sensing Hoover’s ultimate defeat, Meyer’s expansionary efforts effectively came to an end in August 1932. Thus, in spite of strong leadership favoring expansion, the Fed was unable to pursue a sustained expansionary policy. This failure was the direct result of the increased decentralization of power due to the creation of the Open Market Policy Conference in 1930. Foreign claims on the dollar, particularly French claims, were always a serious concern, at times imposing a dominate constraint on policy. The free gold issue was viewed as a real constraint within the Fed. The 1932 open market policy was not a disingenuous ploy to forestall other legislation. It was the direct result of Meyer’s desire to counter the deflationary forces depressing the economy.

Outside wealth, the demand for money and the crowding out effect

Abstract Policy simulations with most large macroeconometric models evidence little, if any, crowding out of private spending from debt financed increases in government expenditures. Examination of the structure of these models reveals that none allows for a wealth effect of debt finance on the demand for money, even though theoretical studies suggest that this wealth effect may cause significant crowding out. This paper provides empirical evidence that increases in government debt held by the public do increase the demand for money; therefore, the fiscal policy simulations of the large macroeconometric models may yield biased conclusions concerning the crowding out effect.

The impact of debt finance on aggregate demand

Abstract The crowding-out hypothesis has received extensive theoretical treatment but little supporting empirical examination. This paper presents the results of several empirical tests of the crowding-out hypothesis. These tests examine the impact of debt finance on aggregate demand, employment, inflation, and the unemployment rate. The results indicate that debt-financed fiscal initiatives crowd out a substantial amount of private spending, but do have a net expansionary effect on economic activity.

The original Operation Twist: the War Finance Corporation's war bond purchases, 1918–1920

In 1918 the United States Treasury delegated to the War Finance Corporation, a newly-created off-budget federal agency, the task of buying Liberty and later victory bonds in an effort to stabilize prices. Bayesian vector autoregression analysis of the bond purchase indicate that the WFC purchase provided significant price support, and lowered bond yields while the program operated. Once WFC purchase ended, war bond yields increased substantially. However, since the war bond purchases were financed by the sale of short-term debt certificates, the bond purchases increased short rates while reducing long rates. The WFC’s bond purchases twisted the yield curve.

Financial crisis, monetary policy reform and the monetary transmission mechanism in Turkey

Turkey experienced a financial crisis in 2000–2001, which led to significant financial reforms. The reforms resulted in a switch to a floating exchange rate, granted greater central bank independence and pursuit of a more credible monetary policy. Investigation of the channels of monetary policy in both periods finds that monetary policys output effects have been strengthened considerably by the reforms. In the pre-crisis period, monetary policy was highly inflationary, while in the post-crisis period, monetary policy targets low inflation and has become a tool for output stabilization. These results support the importance of central bank independence and a credible policy.